Negotiations for 2002 Could Yield 15 Percent Increase in Premiums

Sticker shock: Many purchasers are seeing proposed year-2002 premium increases near 20 percent. William M. Mercer says its clients have been served an average HMO-renewal rate of 18.5 percent, while HewittAssociates reports a 17.6 percent average increase.

This, of course, is before the bargaining begins; employers and insurers will settle somewhere around 14-15 percent, observers estimate. Still, that's well ahead of last year's average hikes of 10-12 percent. Expect employers to look hard at cost-sharing options and for plans to come up with creative ways to help them do that (see our cover story for this month).

Premium hikes have given the HMO industry some short-term profitability. Weiss Ratings says the 492 HMOs it studied made a collective $990 million in profits, compared with a cumulative 1997–99 loss of $1.8 billion from 1997 to 1999. While HMOs shed unprofitable lines of business and some 100 were shut down or merged out of existence from 1999 to 2000, Weiss remains concerned that a handful of companies are driving industry profits, and considers a third of HMOs vulnerable.